| Page 2 of 2 < |
Scandal Grows Over Backdating Of Options
|
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
Companies have long issued stock options to their employees to motivate them. Options allow an employee to buy a certain number of company shares at a price set by management, usually the price the day the option is granted.
The employee makes the most profit by buying stock options at a low price and selling them when the stock market has pumped up the company's stock to a higher price. If a company backdates options, it typically allows the employee to buy options when the stock was at its lowest point, thereby increasing the profit when the stock is sold.
Options usually are granted to a company's highest executives as part of their compensation packages. Backdating has been criticized as a shady way for wealthy executives to get wealthier, even if the company performs poorly.
The process is not illegal if no company documents have been forged, if the other shareholders have been informed and if the backdated options are correctly accounted for in company earnings and tax returns.
It may be legal, but it's "slimy," said Nell Minow, co-founder of the Corporate Library, a corporate-governance watchdog. "It subverts the whole justification for options," she said.
Minow was in New York yesterday lecturing corporate directors on a number of topics, including backdated options.
"No one comes to you and says, 'Let's backdate our options,' " she said. A company's human resources department "will tell an employee, 'We have a great benefit with our options -- a 60-day look-back.' That doesn't sound quite so dirty."
Backdating has cost some companies more than their chief executives. Many have had to restate earnings and take charges on upcoming earnings to account for the improperly recorded options.
For example, in August, Clorox Co. said it took a $25 million pretax charge in its most recent quarter to account for "errors" in how the company accounted for options. Research in Motion Ltd., maker of the BlackBerry, said last month that a review of its options-accounting practices could reduce past earnings by as much as $45 million. Also last month, chipmaker Broadcom Corp. said it would restate earnings to take $1.5 billion worth of options expenses off its books.
Staff writers Sara Kehaulani Goo and Yuki Noguchi contributed to this report.
